Potential Impacts of ‘Pathway to Prosperity’ on Clean Energy Innovation

The House Budget Committee recently passed Paul Ryan’s ‘Pathway to Prosperity’ budget proposal, which aims to dramatically cut discretionary spending as a means of addressing America’s budget deficit. The AAAS R&D Budget and Policy Program crunched the numbers and found that under some simple assumptions and including the impending budget cuts resulting from the 2011 Budget Control Act sequestration, the budget could reduce total R&D investments by up to 12 percent below FY2012 levels. And over the next decade, the budget could cut nondefense R&D by up to 27 percent below the President’s FY2013 request, including a 55 percent cut to programs related to energy. Given these proposed deep cuts, how would clean energy innovation fair?

While the ‘Path to Prosperity’ is more of a budget blueprint and doesn’t specifically say what programs will be cut, we can still provide a top-level understanding of how the intent to reduce these discretionary budget accounts would impact clean energy innovation programs. The proposal suggest total spending targets for national defense; general science, space, and technology; energy; natural resources; agriculture; transportation; health; and veterans benefits and services. This high-level accounting makes predicting the effects of cuts or changes to specific government agencies or programs challenging.

Because of the variety of initiatives undertaken at the DOE, new budget authority for the department is split between the national defense, general science, and energy budget accounts. The top DOE budget programs are listed by these categories in the table below. While it appears from the number of energy projects listed that most of the DOE budget pursues energy innovation programs focused on both renewable and conventional energy, these initiatives account for less than 20 percent of total DOE funds. The Atomic Energy Defense Activities, which is counted under national defense spending, uses over 60 percent of the total DOE budget. The Office of Science, which conducts basic science initiatives and supports many DOE national labs, accounts for about 18 percent of DOE’s budget.

While it is unlikely that proposed budget authority changes would equate to even, across-the-board cuts to all relevant programs, for the purpose of this analysis we assume this situation to be true to provide a general impact assessment. For instance, according to the AAAS analysis, the House proposal calls for $554.2 million in new national defense budget authority, which amounts to a one percent increase in new budget authority between the President’s FY2013 request and the House Budget Committee’s proposal. Figure 2 displays the budget outlook if all defense-related programs at DOE were increased by one percent. The impact would be small, as spending on these programs has risen slightly or remained the same during the past three years.

The proposed cuts to General Science, Space, and Technology are more significant, by reducing relevant programs by 9 percent compared to the President’s FY2013 request. Figure 2 displays the effects of this cut to the Office of Science, which has seen very gradual, but positive budget allocation the past few years.

Finally, and most troubling, energy investments under the House Budget Committee proposal are slated to be cut by 55 percent from the Presidents FY2013 request. To be clear, while we assume that all program areas of the energy budget will experience an equal cut, this assumption is not very plausible. It’s very likely that policymakers would target specific energy technology programs for cuts over others, but it’s still informative to assess the budget proposal from a ‘technology neutral’ point of view. These comparisons are still relevant to assess the overall magnitude of budget reductions that should be expected if the House Budget Committee blueprint were represented in appropriations.

Figure 3 analyzes the budget impact across a suite of energy innovation programs. For example, we should expect deep cuts to DOE’s Advanced Research Projects Agency-Energy (ARPA-E), which first received funding in FY2010 and supports the rapid development and commercialization of high-risk, high-reward energy technologies like next-generation batteries, micro-grid systems, thermal systems, and advanced biofuels. ARPA-E’s budget would decrease by $192.5 million from the President’s FY2013 request of $350 million.

EERE’s suite of technology programs for solar, wind, vehicle technologies, and other renewable energy sources would fall by $1.3 billion from $2.3 billion in the President’s FY2013 request. Similarly large cuts would befall nuclear, natural gas, and carbon capture and sequestration R&D programs. In total, clean energy innovation programs would be cut by $2.8 billion in this simple scenario compared to the FY2013 President’s request of $5.2 billion. Assuming these cuts, the total DOE budget would be reduced by about $3.1 billion compared to the President’s request.

Of course, this analysis reflects only the House Budget Committee’s current proposal for FY2013, which is one of many possible outcomes for next year’s budget composition. Within the energy program, policymakers are more likely than not to pick specific technology categories for deeper cuts than others, meaning that many of the R&D programs above could see harsher cuts than shown. For example, if fossil fuel energy programs were to see a much smaller cut (say 25 percent rather than 55 percent), clean energy innovation programs would have to be cut by nearly 65 percent to meet ‘Pathway to Prosperity’ goals. And the possibility of this type of budget choice is apparent as House budget deliberations begin. The House Appropriations Subcommittee for Energy and Water released their initial proposal that cuts clean energy programs like EERE and ARPA-E by about 20 percent, but increases fossil fuel R&D programs.

Given the limited number of programs available for budget cuts in the discretionary budget, there is no possible scenario that provides little to no cuts to energy innovation-oriented programs under this budget blueprint. Under simple assumptions, clean energy innovation programs at DOE could see a $2.8 billion cut compared to current FY2012 levels, if not more. It goes without saying that this type of budgeting would be a significant setback to the United States clean energy innovation capacity, which is already slated to see a 75 percent drawdown in federal support by FY2014 without additional Congressional energy policy action.

About the author

Megan Nicholson is the Research Assistant at ITIF. She graduated magna cum laude from Mount Holyoke College in May of 2011 with a B.A. in Economics and Environmental Studies. Before joining ITIF, Megan interned at the Global Environmental Facility, where she assisted with the research and writing of a publication on the organization's 20-year contribution to eliminating barriers to energy efficiency investment in developing countries.

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